Reporting on the conduct of directors – Is the new portal system any better than the old one?

News

19

Jan 2017

Reporting on the conduct of directors – Is the new portal system any better than the old one?

Since 6th April 2016, the Insolvency Law reporting process has witnessed a major overhaul because of various amendments to Insolvency Law by the Small Businesses Enterprise and Employment Act of 2015. For Insolvency Practitioners, the system is supposed to be more user friendly and smoothen the reporting process on the conduct of directors. So, has the revamp of the new system really benefitted the reporting process for the Insolvency Practitioner? Quite frankly, we think not and here is why.

Under the old system, an Insolvency Practitioner was required to submit a report to the insolvency service which was used to raise concerns about a director’s conduct in the period leading up to insolvency. The Insolvency Practitioner had 6 months to submit the report from the relevant appointment date to discharge their statutory obligations. Additionally, the Secretary of State had two years from the relevant date to bring any disqualification proceedings.

One of the main issues is that the new online report does not leave any room for flexibility to demonstrate issues that are of concern. Practitioners are no longer required to provide their opinion on whether director’s actions may render them unfit to manage a company, but merely respond to yes/no questions. Surely detail needs to be provided to clarify exactly what the concerns are, or else it is simply disqualification by numbers. In fact, the entire process is not subjective enough in the first instance and the new portal system essentially dumbs this down.

There continues to be a necessity to submit any additional conduct issues that may arise as soon as practicable. On analysis, this certainly influences the reporting process, although one could argue that the shortened timeframe of three months as opposed to the original 6 months to provide a report will result in many practitioners not being able to fully report at this point of time. The problem with this is that the need to submit the report in a shorter timeframe greatly increases the chances that you will not discover nor learn information that could constitute any report. More importantly, the removal of the IP’s discretion regarding unfitness removes their ability to act as any kind of filter. In other words, if any additional information surfaces, you must report it, whether you think it is relevant material or not. This implies that it does not mean you need only consider newly-identified misconduct, but any information in general which arises. This will simply lead to the Disqualification Unit being swamped with less than relevant information.

The time limit for the Disqualification Unit to bring any disqualification proceedings will also be increased from two to three years from the relevant date. However, the unit still has the power to bring any proceedings within the first two years as a matter of practice. One could argue that the increase of the limitation period to bring disqualification from two years to three will allow both liquidators and the Disqualification Unit to spend more time looking at the matter which is positive.

So, the question which begs an answer would be that does the new online portal system achieve its real purpose? Well, in our view, it certainly does not. In theory, the move to a simple online form should be quicker and easier for everyone. However, completing the report feels like filling in a self-assessment tax return than completing a passport application: you won’t have all the information at your finger-tips unless you do the prep work.